Other Briefings
Mukherjee Delivers Common Man’s Budget
Feb. 16 – India’s acting Finance Minister Mr. Pranab Mukherjee delivered the present government’s last budget today. The interim budget stayed on course satisfying the common man before elections this may. Highlights of the budget included tax waivers for farmers, a greater focus on infrastructure, an increase in the defense budget by 34 percent and a significantly higher fiscal deficit of 6 percent of GDP much higher than the initial target of 2.5 percent of GDP. The fiscal deficit for the fiscal year 2009/10 is expected to be slightly lower at 5.5 percent of GDP.
While no sweeping policy changes were made in the budget, it also didn’t announce any cuts in either direct or indirect taxes – a highly anticipated move. The budget instead suggested measures such as elevating literacy rates and jobs, increasing rural spending and subsiding food and fuel – measures that could improve the nation’s inclusive development. Thefull budget will be announced by July by which time the new governement will be sworn in.
The stock markets – both the Nifty and the Sensex nosedived during delivery of the speech as no announcement of a third stimulus package was announced. The government announced a revised estimate of spending Rs 11 trillion (US$227 billion) during 2008/09 as against an estimated total spending of Rs 9.53 trillion (UD$ 197 billion) in 2009/10.
India Opens Doors Wider to FDI
Feb. 12 – Innovative thinking has lead the Indian government to offer India Inc a better deal than any stimulus package could have. In a sweeping move to usher in more FDI into India, the Cabinet Committee on Economic Affairs (CCEA) released a statement stating that equity investments routed through companies in which a majority ownership and control is in the hands of Indians would be treated as fully domestic equity. This effectively then nullify’s any FDI caps in the industry allowing room for millions of dollars to flow in. The retail, telecom, insurance and aviation sectors are expected to benefit most from the move.
Former Finance Minister P. Chidambaram told the Economic Times, “All investments directly by a non-resident entity into an Indian company will be counted as foreign investment, while foreign investment through an investing Indian company will not be considered for calculation of the indirect foreign investment, in case the Indian company is owned and controlled by resident Indian citizens.”
The landmark change in policy means that a company with 60 percent Indian equity and 40 percent foreign equity would be treated as a company with zero FDI. Previously if the same company had invested Rs 100 crore in another firm, Rs 40 crore of this amount would be treated as FDI.
India to Announce Interim Budget on February 16th
Feb. 6 – The present Indian government which will deliver an interim budget on the 16th of February is expected to announce tax sops to aid the staggering economy. While tax benefits will not be announced across the board, experts expect sops to be given to selected industries that have been severely affected.
"They might keep the options open for some fiscal support — more expenditure and tax exemptions for textiles, exports and for small and medium sized firms," N.R. Bhanumurthy, a senior economist at the Institute of Economic Growth told Reuters.
Although it is not established political practice to announce tax cuts in an interim budget, the economic slowdown calls for effective and innovative policy changes.
“Keeping in view the pressures on the Indian industry, lowering of tax rates for companies and individuals may be considered as part of overall economic relief package. As an immediate relief, the removal of surcharge may be considered at this stage,” KPMG executive director Vikas Vasal told the Economic Times. According to current tax laws, individuals with an income above Rs one million (US$20,550) or companies with an income of more than RS 10 million (US$205,507) have to pay a 10 percent tax surcharge.
Unemployment Rate to Escalate
Feb. 5 – The Indian job market doesn’t look too optimistic these days. While falling exports mean that the export sector could loose up to 1.5 million jobs by March, large Indian conglomerates are thinking up innovative ways to lean their workforce. To add to India’s employments woes, fears are that the millions of Indian workers in the Gulf could return due to dire economic situations. Foreign companies such as IBM are also giving their employees in the west an option to relocate to India alleviating fears of further job losses in India’s thriving IT industry.
Although authorities say the situation currently isn’t alarming, if millions came to India in search of employment the situation will worsen. India has announced two stimulus packages targeting specific industries, however results are yet to be felt. Experts further fear that a spike in the unemployment rate could lead to social disharmony and unrests.
Foreign Companies Jostle for India’s Arms Business
Feb. 3 – The global economic crisis doesn’t seem to have dented the Indian arms business. With a budget of well over US$30 billion for importing weapon systems and platforms over the next four-five years, global arms manufacturers are jostling for space of the Indian arms pie. The Indian government on their part is also interested in offers as they plan to increase and upgrade their weapons systems post heightened tensions with Pakistan and the use of some obsolete weapons by the Army, Navy, Air Force and Coast Guard.
India Expresses Concern Over Trade Protection at Davos
Feb. 2 – Indian minister of commerce and industry Kamal Nath who led the Indian delegation at the World Economic Forum last week in Davos expressed deep concern over countries adopting protectionist policies. He warned against barriers in outsourcing and trade of services and goods, fearing that trade restrictive activities from richer nations could drastically harm developing nations.
“History is witness that whenever countries try to prop up protectionism, it intensifies depression,” Nath told the Press Trust of India.
In light of ensuring stability and lessening global financial turmoil, Nath also called for the foundation of a “supra international regulator” for designing a system of regulatory norms that are then followed in all national jurisdictions, or for alerting national regulators of risks building in the financial system, have influence over the alignment of exchange rates or oversee global financial institutions whose activities spill across borders, the Economic Times reported.
India’s Capital Productivity Rises Amidst Global Slump
Jan. 27 – India’s capital productivity – revenue generated per unit of capital employed – increased 36 percent in fiscal year 2007-08 from 1.13 in financial year 2002 to 1.54 in financial year 2008. This means that revenue generated by companies for every Rs 1 crore (US$204,300) worth of their fixed assets rose from Rs 1.13 crore (US$231,000) in 2001-02 to Rs 1.54 crore (US$315,000) in 2007-08.
Heavy machinery, oil, metals and petrochemical industries benefited most by the increase in capital productivity. As a result of generating more revenue out of the same assets these industries witnessed greater bargaining power and bettered economic prospects.
Sahara Might Sponsor Manchester United
Jan. 22 – Manchester United, the world famous British football club and current European Champions, have been looking for a new sponsors for their shirts since the global financial crisis meant that their current sponsor, the AIG Insurance group, is unlikely to renew their contract.
The shirt sponsorship deal valid for four years is worth US$78 million and allows premium positioning of the sponsors name and logo on the front of every players team shirt. Sahara an Indian conglomerate with interests in airlines, financial services and property is currently interested in this deal – the largest in football.
If the deal is struck, it will not only mean that Man U’s players will sport an Indian brand on their backs it will also expand a relatively niche market for football in a cricket crazy nation. Sahara will also not be the first Indian brand to be sported internationally. Ferrari’s F1 car will carry the Tata name on the scarlet cars for world championship honors in 2009.
